Elections to direct credit card rebates to qualified charities.

• Author: Jones, Joel C.

In a letter ruling issued in April 2010, the IRS addressed the common concept of credit card companies allowing their customers to request that their credit card rebates be donated to charity. Not only does this letter ruling continue to affirm the IRS's position on these programs, it also provides a review of the program requirements, along with the substantiation needed for deductions.

Background

In February 2002, in Announcement 2002-18, the IRS addressed the issue of taxable inclusion of credit card rebate programs by specifically focusing on frequent flier miles and other in-kind promotional benefits attributable to a taxpayer's business or official travel that are used for personal purposes. In that announcement, the IRS stated that it would "not assert that any taxpayer has understated his or her federal tax liability by reason of the receipt or personal use of airline frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer's business or official travel." However, in its announcement the IRS further stated that this "relief does not apply to travel or other promotional benefits that are converted to cash, to compensation that is paid in the form of travel or other promotional benefits, or in other circumstances where these benefits are used for tax avoidance purposes."

In July 2002, in Letter Ruling 200228001, the IRS addressed the concept of credit card customers electing to donate available credit card incentive rebates to charity and determined that the taxpayer may deduct these amounts as long as the cardholder makes an affirmative election to direct the rebate amounts to a qualified charity.

Letter Ruling 201027015

In July 2010, in Letter Ruling 201027015, the IRS again addressed the election by a credit card customer to donate credit card rebates to charities. The petitioner in the letter ruling asserted that purchases would be made with the credit cards and, as a result of these purchases, the taxpayer would be entitled to rebates in accordance with the rebate program, which was based on a percentage of the purchase and reduced by fees charged by the credit card company. The taxpayer would have the option of either taking these rebates as cash payments or allowing the credit card company to pay the amounts to a charity chosen by the taxpayer from a list. The election was made when the taxpayer opened the credit card, but the taxpayer could change it at any time by contacting the credit card...